Indirect Taxation and the Single Rate Myth

Abstract

One of the main controversial topics in relation to the Brazilian tax reform is the introduction of a single tax rate for the Goods and Services Tax (IBS in the local acronym), based on the argument that this would be a global trend in countries that introduced a Value Added Tax (VAT). This article will address this topic to demonstrate that the claim of a single tax rate is a myth and not a trend in the countries where the indirect taxation is implemented through a VAT system. On the contrary, a comparative analysis indicates that many countries have around three different rates or, at least, the provision that some supplies of goods and services will be exempt or zero-rated. This article will address the “single rate myth”, the principle that essential goods and services should be treated differently under a consumption tax and that indirect taxes may be used to promote non-fiscal goals.